Newbies Guide for Tenant Screening: What Not to Do

Note, Brandon Turner wrote a thorough, step by step guide on Tenant Screening. This blog post will be the polar opposite. Rather than preach what-to-do, this blog post will be what NOT to do. Essentially, please read and learn from my mistakes.

I was listening to a class on negotiation last week, titled, “How to Negotiate, when you have to do the deal.”

In the first part of the class, the guest speaker stated that they only used that title to fill-up the seats. His advice was to never put yourself in the position where “you have to do the deal.”

This reminded me a lot of my first multi-family purchase. I bought it for $85,250 in late October and put $15K into it. The triplex was in a great part of town and I was expecting each unit to rent for around $650/month. The renovations were finished the day before Thanksgiving.

Want to take a guess at how many people move between Thanksgiving and New Years Eve?

Yea, not many.

The first three months of the loan were interest only, so needless to say I was getting a little antsy when December rolled around and the place was still empty on Christmas. I finally got a serious inquiry the day after Christmas from a woman named Kelly –- and for as long as I live –- I will never forget Kelly.

I decided to not charge an application fee, because let’s be honest — who likes paying application fees? Instead, I just told this applicant to print off her free credit report from annualcreditreport.com. She emails me back and said she is having problems getting the credit report but she knows it’s not good. I ask for a phone number so we could talk, and she emails me back to say that Verizon won’t let her have a cell phone because of her credit score.

I asked what her credit score was, and she was right -– her credit score was 480.

By way of reference, I’ve seen people go through bankruptcy with a credit score of 550.

Here was Kelly’s summary:

No Job

Bad Credit

Not enough money for a deposit

But here’s the deal – she had the first month’s rent and I needed someone in this place months ago.

So I let her have the place. She promised she would get me the deposit within a month.

Shocking as it will be for some of you, she didn’t pay rent on time and I had to evict her.

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A Different Type of Lease

My friend Jeff, who owns several multifamily properties gave me a great tip for protecting yourself against this. Write the first lease for three months. This ensures that both you and the renter are on the same page, with things like paying rent on-time, not destroying the place, not being a nuisance to other renters, and so on. If you aren’t on the same page, then don’t renew their lease three months later. If they don’t move out they are legally trespassing, which makes it far easier to kick someone out. On the other hand, if they turn-out to be a great renter, then after three months write a one-year lease. This way, you get a great renter for 15 months.

Top 7 Things I Would Have Never Seen If I Wasn’t a Landlord

A credit report with a score of 480.

Heroin Needles

A grown man, with a go-tee that goes down to his belly button

On a rent application: How long do you plan on renting? “Indefinite!”

Almost 1,000 VHS tapes in one bedroom

All 4 Windows Duct-taped on a Car

A marijuana plant taller than me (I’m 6 ft)

In summary, please learn from my mistakes. If a tenant doesn’t have enough money for a deposit and first month’s rent, they will not have enough margin in their budget to pay you rent. ALWAYS take a DEPOSIT!

If you are wondering about the current state of the triplex, it’s doing great, with annual rents around $20K.

Note from the Editor: Anytime you put a tenant in your property, you want to thoroughly screen them, take a security deposit, and make sure they have the resources to pay the rent. If you take someone on because you’re desperate to fill a unit and drop your standards, the odds of you needed to evict are drastically higher. Always do your due diligence.

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About Author

Jimmy Moncrief is a bank underwriter and real estate investor. He blogs at RealEstateFinanceHQ.com where he talks about all things real estate. He also is the creater of free evernote templates for BiggerPockets members to learn how to better organize and automate their real estate investing.

19 Comments

Been there, done that – even after years as a LL. I’m an honest person who keeps my home in great condition. My problem is that I BELIEIVE people. Huge mistake. I’ve learned my lesson (a few times). When you are honest, you tend to believe that others are. Many aren’t. Check them out thoroughly. Con artists prey on people like me. No more.

Hey Jimmy, sorry about Kelly lol! I’ve accepted tenants with poor credit before, especially when they were honest and told me what I’d find on their credit report, but only if they had a job, submitted a security deposit, and had a co-signer on the lease.

The co-signer is usually a parent and helps mitigate any chance they won’t pay since that person doesn’t want their credit affected. Has worked nicely for me, and those tenants usually tend to stay much longer because they don’t want to try and hassle finding another landlord who is so accommodating.

In some situations, it’s a great solution. I particularly like them to be the parents, because frankly, if the kid(s) can’t make their rent, who’s the first person they’re gonna turn to anyway?? Plus some parents like the idea of helping to get their kids back on their feet again.

I always let the co-signers know at the end of the lease term, we can reassess where the tenant is at, and if their financial situation has improved, then they can be removed as cosigners.

I take people with bad credit as long as they have a job and have the means to pay their rent. Sometimes people’s credit isn’t the best, especially in the aftermath of the crash.

But I take the approach of HOUSE (doctor on television, which is apropos for rentals) — “Everyone lies”. I verify everything independently on their application. I have had people lie on their application.

Fortunately, I don’t know what a heroin needle looks like, and have only ever seen a pot plant once in person (I lived on an acre of land once and in a remote corner there was one growing; it was about 6″ tall).

Nice piece! Great reminder too. I had a guy with bad credit once who paid a whole year in cash (from a disability settlement) in advance and guess what ? I had to evict him as soon as the year was up. Go figure.

Thanks for this post. Rushing to get someone into a place is never a good idea. I also agree that having rigid processes in place save you a lot of headaches and take the emotion out of the equation. Treat everyone the same. There’s so much good info on this site related to all of these things.

Always better to have the place vacant until a suitable tenant is found. A bad tenant can chase all of the others from a multi-unit. Sometimes a bad tenant wants all of the other tenants gone and makes every effort to do so. You get the hundred calls to deal with during the process.

In Philly a lease is just about as worth while as a few sheets of toilet paper (toilet paper has a higher use), our LT courts highly favor the tenant in the time it takes to remove on with a one year lease. By simply paying the rent in court or promising to do so will garner them an extra free month or two. On an appeal a tenant can pay one third of one month due, with the promise to escrow the next months rent with the court when it is due. The process only starts if they do not fund the escrow account and only then if the landlord asks the process to go forward.

So the above scenario kind of precludes one just putting in any tenant for fill the place up.

What I do in Philly is offer only month to month rentals, if no payment or a nasty tenant is in place, simple notice of cancellation of the lease is required. There is no paying in court or correcting behavior only to fall back to the old habits the next month.

With this month to month hanging over their heads tenants tend to pay on time and behave.
I do not worry about folks staying only one month and moving on, this just does not happen.
One of my best tenants has been month to month for 8 years.

The owners of the property which I manage have rented to people without a thorough screening when they “have all the money”. From experience, I can tell you that sometimes that is because the prospective tenants have just ripped-off their previous landlord by not paying rent for 2+ months in anticipation of their move. In other words, the upfront money for the rent and the deposit is actually what is owed to the previous landlord. I have worked for them for 3 years now. At the very beginning, they still did the renting. In three years, they chose 6 renters and I chose 5. Of their 6, 5 are gone along with $7500 in unpaid rent and $10,000 in clean-up and repair costs. The 6th one is a good tenant. Of my 5, 1 is gone but owed no rent, 1 is still there but a little “iffy” (still owes $250 towards deposit after moving in 1 year ago – the owners demanded that I not “pressure” them about it), and the other 3 are good tenants. What is bewildering is that they managed their own apartments for 20 years before I came along … and I am a newbie. I had never managed properties before, but read and read and read before starting the job. Why did they hire me? Because they know I am honest and hardworking, have a good relationship with people, and am not a wimp. The wife gives me advice here and there. The husband argues with me occasionally and has “fired” me twice with the wife rehiring me. These people managed their properties with money and feelings topping the list of to whom they should and should not rent. I treat their rental properties more like a business than the actual owners do. By the way, I actually love my job, even when tenants give me “the evil eye”.

Great information, I am after 40 years not being a landlord starting the process of purchasing a property for part of our retirement income. I am also a big user of Evernote and look forward to your idea’s